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Mar 16, 2017

Tighter supply and more volatility expected in lithium markets

Scott Simpson, special to BNN.ca from Market One Media Group

Drill crew at Pastos Grandes.
, Image courtesy of Market One Media

The long-term capacity of lithium producers and explorers to keep pace with demand remains doubtful, despite surging investor interest, and the metal’s pivotal role in a global energy revolution.

Veteran analyst Joe Lowry of Global Lithium recently released a chart indicating demand for lithium for the production of lithium-ion batteries will quadruple by 2021 compared to 2015. Lowry, noting that lithium supply is comfortably ahead of demand in 2017, expects that 97 per cent of annual production will be taken up in four years. That portends a scramble for supply and tighter, more volatile markets.

Lithium is not just a transportation story, despite global expectations for an unprecedented surge in electric vehicle production by Tesla and rivals including Volkswagen, BMW, Ford, Toyota, GM and manufacturers in China. Widespread adoption of utility-scale electricity storage batteries will push demand for lithium even higher.

“The bottom line is that supply will have a hard time keeping up with demand well into the next decade and perhaps beyond,” Lowry cautions.

Not every company in lithium space will succeed, he adds, urging investors to focus on those with quality assets and to exercise strong caution about the long-term prospects for junior miners and explorers vying for space in the sector. “Focus on quality assets,” he said.

Canadian companies are among those attracting interest from institutional investors. Earlier this year, Vancouver-based Lithium Americas Corp. announced a $174 million US strategic investment by Ganfeng Lithium, and a $112 million US strategic investment by Bangchak Petroleum.

Chief Operating Officer, Iain Scarr on site at Pastos Grandes. (Image courtesy of Market One Media)

The company, which is developing assets in Argentina and Nevada, noted in a January 2017 presentation that over the next 20 years, electrification of the global vehicle fleet would require additional annual mining production exceeding 3.1 million tonnes of lithium carbonate equivalent, or LCE. That’s about 15 times projected annual production for 2017.

Lithium Americas chief technical officer, David Deak, noted in the presentation that it would take about 100 gigafactories the size of the one Tesla recently opened in Nevada to make enough batteries needed to electrify the world’s electric vehicle fleet, and support growth of the energy storage market.

Millennial Lithium Corp. (TSXV: ML) president Kyle Stevenson suggested the rate of demand growth for lithium over the past decade is “faster than we’ve witnessed for any major commodity over the past century.”

“Lithium demand grew at an annual rate of 11 per cent between 2010 and 2015 and is expected to grow at an annual rate of 16 per cent until 2025,” Stevenson said. “Electric cars and energy storage, including opportunities for home storage of solar and wind energy in lithium-ion batteries, are driving this remarkable change technological change.

“Mining companies that want to participate in this opportunity have been moving quickly to lock up assets for the long term.”

Millennial is a Vancouver-based junior developing four lithium properties covering over 25,000 hectares within Argentina’s portion of South America’s lithium brine ‘triangle’.

Stevenson noted that South American brine production is the world’s most cost competitive mode of lithium production. Argentina, Bolivia and Chile each hold a share of the triangle, which in aggregate accounts for half the world’s lithium reserves. “Brine projects have a significant advantage over hard rock producers in Australia, for example, in terms of both cost of production and revenue.”

“The anticipated upsurge in future lithium demand and tight market conditions has led to an increase in the spot prices from approximately $7,000 US per tonne in September 2015 to more than $20,000 per tonne,” Stevenson said. “Long term contract prices are now at $12,000 per tonne, up from $5,500 per tonne in 2016.”

He said Millennial plans to “move quickly” towards production with a goal of being a large contributor to increased production by miners in Argentina. The country’s government has been aggressively cutting red tape to boost mining activity since Mauricio Macri took over as President in November 2015. The country’s pro-mining profile is attractive to juniors — but Stevenson said newcomers don’t have much to choose from.

“Millennial was lucky because we had a head start on many companies and we were able to bring on an already established technical team lead by Iain Scarr, our senior geologist and chief operating officer. Iain's team has been working in Argentina for eight years and they were ready to hit the ground running. Competition has driven the cost of land up — and it has made it harder to find quality technical expertise.”

Millennial has secured four properties in Argentina — Pastos Grandes, Cruz, Cauchari East and most recently, the Pocitos West Project which is almost 16,000 hectares.

Stevenson describes Pocitos West as “one of the last large land packages available in the lithium belt of Argentina. At present we are focused on moving towards production at Pastos Grandes. The property is approximately 5,500 hectares in size and located 154 kilometers west of Salta, Argentina. We recently released results from our initial three-hole drill program at Pastos Grandes with very positive results.

“All three holes encountered brine from surface to 400 meters. All holes were open at depth. Our plan now is to move forward with a 43-101 resource estimate and Preliminary Economic Assessment, to be completed in the second quarter of 2017.”

Millennial has entered into an option agreement to acquire 100 per cent of the 2,990 hectares Cauchari East Lithium Project in Jujuy Province, adjacent to Orocobre's producing Salar de Olaroz and Lithium Americas Corp.'s advanced stage Cauchari-Olaroz project.

Stevenson noted that several Canadian juniors are attracting international attention — and funding — reflecting Canada’s stature as a global centre of mining expertise.

He said Millennial, which has recently been trading in the $1.40 range on the TSX Venture Exchange is currently working out details of a $5 million financing. Other companies attracting funding include Vancouver-based Advantage Lithium Corp., which closed a $20 million financing deal in February, and Toronto-based Neo Lithium Corp., which raised $25 million in a bought deal, also in February.

“Canadian mining and exploration companies are once again leading the world, this time in the exploration and development of new lithium projects,” Stevenson said. “Although the companies are Canadian, the money is coming from around the world, Australia, USA, China, Thailand, Korea, Japan, etc.

“We’re excited about our projects — and about the global technology transformation they’re supporting. We believe there has never been a better opportunity to invest our time and energy into lithium.”